7 Tips for Starting Your Own Foundation

If you’re passionate about giving and want to help as many people as possible, you may want to consider starting a foundation so that some of those trillions can go to your favorite cause.

Not sure how to get started? Don’t worry!

We’re sharing everything you need to know about starting a foundation down below.

What is a Foundation?

First things first, let’s go over some legal details so you know some of the most important rules for starting a foundation.

A private foundation is usually funded by either a single person, a family, or a business.

In order to be considered a private foundation by the Internal Revenue Service (IRS), your organization must also be an independent legal entity that is organized solely for charitable, religious, educational, scientific, or literary purposes.

How is a Foundation Taxed?

The contributions a foundation receives are tax deductible.

Each year, foundations must also pay 5 percent of the previous year’s net average assets. This includes charitable donations and some administrative costs.

Why Start One?

Some of the benefits that come with starting a private foundation include:

Current-year tax deductions

Ability to give at anytime

Maintain full legal control over governance, spending, and assets

Create a lasting legacy

Get family involved in charitable activities

Pass on important skills and values to younger generations

Give directly to individuals in need with tax-deductible grants

Run other charitable programs without having to set up a separate nonprofit

Of course, in addition to the tax advantages that come with starting a foundation, you should also take some time to think about why you specifically want to create one.

What is your specific area of interest? Who do you hope to help with the donations your foundation receives?

Before you move forward with starting a foundation, take some time to nail down exactly which topics, areas, or specific causes you’re interested in helping.

Starting a Foundation

Now that you understand more about what a foundation is and the advantages that come with starting one, you can follow these seven steps to get the ball rolling.

1. Incorporate

Once you’ve defined your foundation’s purpose, it’s time for the legal work to begin.

First, you’ll need to become incorporated in the state where you plan to conduct business.

The specific requirements for being incorporated vary depending on your specific state.

To figure out how you should proceed, you can either hire an attorney to help you out or contact your Secretary of State’s office for assistance.

Generally speaking, it involves the following steps:

Ensure your foundation’s proposed name isn’t registered to any other group

Draft Articles of Incorporation, the legal document that governs your corporation’s management (there are templates online that can help with this)

Name your board members (most states require at least three)

You’ll also need to pay the required filing fees to make things official.

2. Establish By-Laws

Once you’re incorporated, you’ll need to take some time to draw up some additional rules for your foundation to run by.

Most foundations draw up a set of by-laws. These specify things like rules for appointing board members, terms for the board, and the foundation’s fiscal year.

3. Draft a Conflict of Interest Policy

You’ll also want to draw up a conflict of interest policy. This will explain how the foundation will deal with situations in which a board member’s personal interests conflict with the goals and interests of the foundation.

Most policies will require board members to immediately disclose any potential conflicts of interest. They’ll also require members who do have conflicts to recuse themselves from making any decisions in which they have personal interests.

4. Establish Funding Guidelines

It’s also important to set up guidelines for how you will distribute funds. Some things to cover in your guidelines include:

Application process (if outside groups can apply for grants, how will they do so?)

Grant ranges (how much money are you willing to give away?)

Calendar (how often will you accept grant proposals?)

This may seem like a lot to figure out up front. But, the more work you do in the beginning, the better prepared you’ll be to help those in need.

5. Apply for an EIN

Just like when you’re starting a business, one of the first things you need to do is contact the IRS and apply for an Employer Identification Number (EIN).

Your EIN will be used to identify your foundation. It’s free to get an EIN, and it’s beneficial even if you don’t plan to hire any employees.

6. Apply for Tax-Exempt Status

In addition to an EIN, you’ll also need to file paperwork with the IRS to receive tax-exempt status.

You’ll specifically need to fill out Form 1023. This form will ask you to provide the following information:

How your foundation is organized

What your primary activities are

The composition of your board of directors

Financial information about your foundation

When you submit the form, you’ll also need to submit a copy of your funding guidelines, copies of organizing documents (Articles of Incorporation, by-laws, etc.), and filing fees.

You should also be prepared to answer follow-up questions from the IRS before you officially receive tax-exempt status.

7. Start Raising Money

Once you’ve got your foundation all set up, you’ll need to bring in donations to help keep in running.

A well-designed website will work wonders for encouraging donations. Everything from the domain name, which this company can help with, to the typography needs to be on point.

You should also make sure that people who visit your website know exactly where to go to donate. Make your “donate now” button as prominent as possible.

You’ll also want to include supporting elements to help encourage visitors to donate. Listed below are some elements that many other charities use:

Clarify how donations will be used (what percentage will be donated, where it’s going, etc.)

Use strong imagery to appeal to visitors’ emotions

Use a contrasting color for the donate button to make it stand out

Make your site simple and easy to navigate

Another good tip is to limit the amount of information people need to provide when they make their donation. Most people don’t want to give away a ton of personal information, nor do they want to spend a ton of time filling out an online form.

Final Thoughts

Starting a foundation is hard work. But, if you have a cause that you’re really passionate about, a foundation is a great way for you to continuously support it.

Need help creating awareness and building your foundation’s brand? Check out this post for some great advice!